Hard Money Exit Strategies: Sell, Refinance or Extend
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Key takeaways
- Every hard money loan ends in a balloon; the exit must be underwritten before you close.
- Plan A (sale) and Plan B (refinance) should both pencil at purchase.
- Extensions cost 0.5–1 point per period — fine once, expensive twice.
- List early, refinance early and communicate with the lender before maturity, not after.
Underwrite two exits before you buy
Lenders approve the exit as much as the property, and so should you. For every deal, pencil both a sale (ARV less 7–9% selling costs less all-in cost) and a hold (does market rent produce a DSCR of 1.0–1.25 on a 75% LTV refinance that pays off the hard money loan?). A deal that works only one way is a deal that works only in one market.
Exit 1: sale
- List at 80–90% completion with staged photos to overlap marketing with the final weeks of work.
- Price to sell within 30 days; each month of carry costs 1–1.5% of value.
- Pre-arrange payoff: request a payoff statement 10 days before closing and confirm per-diem interest and release fees.
- Sell to another investor as-is if the renovation stalls — a discounted quick sale beats a second extension.
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Exit 2: refinance
The DSCR loan is the standard takeout: 30-year money at 6–8%, 75–80% LTV, qualified on rent. Confirm seasoning early, keep rehab documentation, and order the refinance appraisal as soon as the property is rent-ready. Conventional investor loans are cheaper for borrowers with qualifying income and fewer than 10 financed properties but require 6–12 months seasoning for cash-out. Commercial deals exit to bank, agency (Fannie/Freddie small balance) or CMBS debt once occupancy and NOI stabilize.
Exit 3: extension
Most lenders grant a 3- or 6-month extension for 0.5–1 point if the loan is current and the project is progressing. Request it 30–45 days before maturity with an updated timeline and photos. A second extension is a warning sign to the lender and often priced punitively; by then a sale usually makes more sense.
When the market moves against you
- Re-run both exits with current comps and rents.
- Call the lender early — a cooperative borrower gets workouts; a silent one gets default notices.
- Consider a rate-and-term DSCR refinance even with no cash out; it stops the clock.
- Bring in a partner with capital for a pay-down to hit the refinance LTV.
- Sell to an investor buyer. Taking a small loss beats default, which costs default interest (often 18–24%), legal fees and your credit.